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Mayors Discuss Water Policy and Stockton's New Water Partnership in Denver

By Rich Anderson
June 23, 2003


Trenton Mayor Douglas H. Palmer and Augusta Mayor Bob Young led Mayors in an Urban Water Council meeting in Denver. Two resolutions were approved and passed on for action by the Conference of Mayors. One resolution urged Congress to adopt the "Twenty-First Century Water Commission Act of 2003". This bill (H.R 135) would establish a 3-year Commission to develop a plan to ensure an "adequate and dependable" water supply for the nation over the next 50 years.

Young commented on his testimony before the House of Representatives Water Resources and Environment Sub-Committee in April and in May. He described water supply problems faced by American cities who are trying to deal with interbasin transfers of water, where one region seeks water supplies from another watershed. Young indicated that transfers of water from regions that apply sustainable development principles to those that do not is an indication of poor planning. Albuquerque Mayor Martin Chavez stated that his city is "substantially challenged" in balancing the needs of citizens, the agricultural community and the critical habitats of endangered species given a limited amount of water available. Chavez seeks to ensure an adequate water supply in the future as the current groundwater source faces depletion over the next 20-25 years. Young emphasized that the "Act" could help shed attention on water problems, and the resolution calls for a mayor to be a member of the Commission established by the Act. Port St. Lucie (FL) Mayor Robert E. Minsky urged the UWC to make sure that the Commission encourages the use of seawater desalination as a technology to provide high quality water.

The second resolution supported EPA's new Water Quality Trading Policy. This policy would give credits to cities trying to meet state water quality designations by improving water quality in other areas of their watersheds. The stipulation is that the other areas' water quality improvement would exceed what is normally acceptable to meet water body designations. This approach is in synch with previous watershed resolutions adopted by the UWC calling for flexible regulations that are sensitive to unfunded mandate concerns.

Young and Sugar Land (TX) Mayor David Wallace reported on UWC efforts to expand local investment in water infrastructure through the use of Private Activity Bonds (PABs). The mayors indicated that existing infrastructure financing mechanisms including general obligation bonds, revenue bonds, enterprise bonds and EPA's state revolving fund loans are insufficient to allow the nation's cities to comply with new federal environmental and public health mandates. The UWC seeks to have Congress remove PABs used for water infrastructure from state volume caps.

Young described discussions held with Pamela Olson, Assistant Secretary for Tax Policy, of the U.S. Department of the Treasury. Young and Palmer told Secretary Olson that changing the tax code could result in substantial new investments in water infrastructure that would save cities millions of dollars and create significant direct, indirect and induced multipliers that would stimulate the economy. Wallace reported that discussions held with leaders in the House of Representatives were productive, and there is a sense that Congress is willing to work with the Conference to accomplish environmental goals that will also help the economy recover.

Stockton Mayor Gary Podesto organized a presentation describing the city's recent approval to proceed with a major new public-private partnership. The Partnership involved what is called a Design-Build-Operate (DBO) that would rehabilitate parts of the water and wastewater facilities. Podesto worked with other city council members and city administrative staff to define goals for the benefit of the city and its residents. The two key goals were to reduce the risk for utility performance, and reduce the risk for environmental compliance and business conditions. Cost savings for capital investment and operations, provision of adequate water supplies and protection of all current employees were specific goals the city had in mind. The city sought out professional help to define these goals.

Jim Binder from Alternative Resources, Inc. was retained by Stockton to help develop and evaluate a Request for Qualifications and a Request for Proposals (RFQ/RFP). He stated that the city insisted the evaluation of proposals and ultimate choice of service provider would be based on quality balanced with cost. Mr. Binder developed a model service agreement that bidders would propose against. Also, the current city water and wastewater programs were used as a benchmark to determine if an outsourcing approach could save money, and by how much.

Eric Petersen from Hawkins, Delafield & Wood was the attorney retained to help the city determine what risks could be shifted from the public sector to the private operator. Petersen identified areas that the city would maintain control: ownership of assets and revenue streams, setting user rates, capital planning, and bond financing (tax-exempt). The city also wanted to include a clause for convenience termination (set at $1 million). Petersen described areas where the private operator would assume risk. These include: environmental performance (air emissions, effluent and residuals management), odor control, finished water quality, liability up to $100 million, etc.

Gary Miller, Executive Vice President of OMI who teamed with Thames Water on the project, presented the private sector perspective of the partnership. Interestingly, Miller indicated that OMI and Thames Water evaluated whether or not the team should spend the time and resources necessary to enter the bidding process. Key among the items evaluated were whether or not the team agreed with the city that there was a pressing need to make the capital improvement. Additionally, the team had to be convinced that there was a "champion" among the local elected officials who would sustain the difficult effort to win over the other city leaders on the concept of savings through a DBO.

Podesto ended the panel with remarks about the process required for a local elected official to be successful. He indicated that it took courage, perseverance, and a lot of explaining and patients. The public benefits, he stated, were worth it. Contract is valued at $600 million over 20-year term; and capital improvements amounted to $57 million. At the end of the day, the project would avoid a 25 percent rate hike to rate payers. Instead, the improvements could be made with only a 7% rate increase. Capital and operating savings were valued at $21 million.

Young ended the meeting by reminding the Mayors that the Urban Water Council would hold its annual Urban Water Summit in Chicago from September 10-12.